Google settles investor lawsuit over common stock split

Google Inc., the world’s largest Internet search engine, settled a lawsuit on the brink of trial over the company’s plan for a stock split that shareholders claimed would unfairly allow founders Larry Page and Sergey Brin to strengthen their corporate control.

Lawyers for a Massachusetts pension fund and other investors were scheduled to begin presenting testimony tomorrow in a Delaware court about a stock reclassification to create a new class of nonvoting shares, court filings show.

Under the tentative settlement, which must be approved by a judge, amendments of stock policies will require advance warning, increases in voting control for Page and Brin will trigger enhanced scrutiny, and plaintiffs’ lawyers will get “reasonable” fees and expenses.

Unhappy shareholders contended Page and Brin were wrongly trying to entrench their control of Google, one of the world’s five largest companies by market value, according to data compiled by Bloomberg. Google’s market capitalization reached a record $278 billion in March and its shares were trading above $883 each today. Shares rose 1.22 percent to $855.72 at 10:54 a.m.

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“The case boils down to whether Page and Brin are getting something in the reclassification that comes at the expense of other Google shareholders,” Larry Hamermesh, a Widener University law professor who specializes in Delaware corporate law issues, said in an interview.

Google, based in Mountain View, California, reported first-quarter profit in April that beat analysts’ forecasts as it pushes beyond its roots as an Internet-search business to enter new ad-driven markets, including smartphones, Web services and video. The company’s search and video businesses generated $8.64 billion in revenue for the quarter, up 18 percent from a year earlier, according to Benjamin Schachter, an analyst at Macquarie Securities USA Inc.

Google’s lawyers said in pre-trial court filings that the new shares were designed to increase the company’s flexibility in making acquisitions and rewarding employees while properly allowing Page and Brin to maintain control of the company they started in 1998. Google first publicly sold $1.67 billion in shares in August 2004. At the time, it was the largest IPO for a Web company.